Tax Administration:

Collecting Federal Debts by Offsetting Tax Refunds

GGD-87-39BR: Published: Feb 9, 1987. Publicly Released: Mar 5, 1987.

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In response to a congressional request, GAO provided information on the Internal Revenue Service's (IRS) implementation of its Refund Offset Program involving delinquent debts owed to five federal agencies, specifically: (1) the process by which IRS set off tax refunds against delinquent debts; (2) the program's impact in terms of money collected and the extent of incorrectly offset tax refunds; (3) the administration's plans for changing the program's operating procedures and expanding the number of participating agencies; and (4) congressional and IRS concerns about the potential impact of the program on IRS resources and on taxpayers' filing and withholding practices.

GAO found that: (1) in its first year of operation and at a cost of $1 million, IRS set off funds from nearly 275,000 delinquent accounts and collected over $150 million in delinquent debts as of October 8, 1986; (2) taxpayers received $2.7 million in reimbursements for accounts that IRS incorrectly set off because an agency erroneously referred the account or a spouse of a debtor taxpayer was not obligated to pay the debt; (3) due to the program's success in collecting delinquent debts and generating additional revenues, the administration will expand the program to include four more agencies and to increase the number of assistance programs, from which three of the five original agencies will select delinquent accounts; (4) although the participating agencies reimbursed IRS for its costs, the program used IRS staff that would otherwise perform tax-related duties; (5) as the program's coverage expands, IRS may need more resources to operate the program; and (6) the program could create a tax collection problem for IRS if taxpayers adjust their filing practices in order to avoid future offsets by not filing tax returns or by changing their withholdings so they receive little or no tax refund.

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